KFC Operator and URA in Shs4.2 Billion Tax Dispute

The Tax Appeals Tribunal (TAT) has delivered a mixed verdict in a significant tax case involving Kuku Foods, the company operating KFC restaurants in Uganda. The Tribunal affirmed that Kuku Foods owes capital gains tax due to a change in its ownership structure, aligning with the Uganda Revenue Authority’s (URA) stance.

However, the Tribunal has directed URA to reassess the initial Shs4.2 billion tax demand. This ruling is a key development in Uganda’s tax law, particularly concerning indirect transfers and offshore corporate transactions impacting local assets.

The dispute originated when URA issued the Shs4.2 billion assessment against Kuku Foods after a transaction altered the company’s ownership through offshore entities. URA argued that the transaction triggered capital gains tax under the Income Tax Act, a measure designed to prevent tax avoidance by structuring deals outside Uganda while retaining valuable local interests.

Kuku Foods contested the assessment, arguing that URA misinterpreted the law and wrongly calculated the tax liability. The company challenged both the legal basis of the assessment and the methodology used by URA to arrive at the Shs4.2 billion figure.

Despite Kuku Foods’ arguments, the Tribunal sided with URA on the core issue of taxability. It found that the ownership changes fell under Uganda’s change-of-ownership provisions, deeming the transaction a taxable event. The Tribunal emphasized that the law focuses on the economic substance of transactions, not just their legal form, and that significant changes in beneficial ownership of entities with Ugandan assets can trigger tax obligations.

While the Tribunal upheld URA’s right to tax the transaction, it found flaws in the calculation of the Shs4.2 billion assessment. URA did not sufficiently justify its figures or methodology. Consequently, the Tribunal set aside the existing assessment and ordered URA to conduct a fresh computation based on its findings.

This outcome represents a partial victory for both parties. URA’s interpretation of the law is validated, while Kuku Foods avoids the immediate payment of the Shs4.2 billion and gains an opportunity to review any revised assessment. The ruling offers guidance on capital gains tax for companies with complex international structures operating in Uganda and underscores the need for accurate tax computations by authorities.

Source: https://www.monitor.co.ug/uganda/business/markets/the-kfc-ura-shs4-2b-tax-fight-5506310